Northwest drops order for 74 jets Strapped carrier moves to cut costs

December 08, 1992|By New York Times News Service

Northwest Airlines, trying to retrench and survive, said yesterday that it had canceled a $3.5 billion order of jets from Airbus Industrie as part of an $8 billion package of cost savings and new financing.

The cancellation of the order from the European aircraft consortium was one of the most severe measures yet taken in the slumping airline industry's two years of efforts to control spending. The canceled order was for 24 A340 aircraft and 50 A320 models.

The Northwest move was unusual because the order was canceled rather than postponed, as has been done by Northwest's major competitors, like American, United and Delta.

But Northwest also did some postponing yesterday, saying it would delay delivery of another $2.7 billion worth of Airbus aircraft.

Industry analysts said the order cancellation and the delay could mean Northwest would have a tougher time in expanding in international markets, where its competitors are making a big push despite cutbacks in spending. Northwest is the nation's fourth-largest carrier and has a major route network over the Pacific.

John H. Dasburg, president and chief executive of the airline, which is owned by NWA Inc., said the cost-reduction package was intended to control long-term expenses rather than just be a short-term effort to ride out the current downturn.

Still, the package did address Northwest's immediate problem of being short of cash. The airline said KLM Royal Dutch Airlines, which owns a little more than 50 percent of the equity in Northwest, and five of Northwest's major banks and suppliers had agreed to provide $250 million of credit to finance the airline's operations.

Northwest also said it had reached an agreement with its lenders to defer $340 million in payments on its debt in 1993 while management worked to get the debt repayment stretched out over a longer period.

In addition, Northwest said it had commitments from investors to finance $730 million worth of aircraft to be delivered next year.

The airline also said it hoped to negotiate agreements with its unions that would save about $300 million a year in labor costs for three years.

Analysts said the package would help Northwest to keep paying off its debt of about $4 billion, most of which dates from the takeover of the carrier by Alfred Checchi and a group of investors in 1989.

Kevin Murphy, an airline analyst for Morgan Stanley, said Mr. Checchi and his investors were paying a high price for having acquired the airline in a leveraged buyout.